Dignity Health has dropped plans to merge with Ashland Community Hospital, a decision that a local hospital official said stemmed at least in part from community resistance.

Despite the setback, ACH still hopes to have an alliance formed with a new hospital system by the end of 2012, said Doug Gentry, chairman of the hospital board.

"We are very disappointed that negotiations with Dignity could not move forward "… we felt Dignity was a strong, good fit for the hospital and community," Gentry said. "We wanted to keep negotiations open "… but we're quite sure they mean what they say."

Dignity Health sent a letter last week notifying ACH the offer was off the table, he said. The ACH board asked the San Francisco-based hospital system to reconsider, but Dignity Health confirmed Monday it was turning away from Ashland.

Gentry said Dignity Health didn't cite specifics for walking away from the potential merger in its letter, other than "residual resistance" in the community, and uncertainty about being able to conclude the deal. The deal would have required a lease arrangement with the city of Ashland, an agreement to acquire the hospital from the city and ACH board, and an agreement with the Ashland Community Hospital Foundation.

A media statement released Monday by Dignity Health said, "After considerable analysis and discussion, the two organizations were not able to reach an agreement on the final closing conditions for the merger and have decided to end negotiations."

During the course of the negotiations, some community members raised concerns that Dignity Health, because of its ties to the Catholic Church, would restrict women's reproductive services and the rights of dying patients to get lethal prescriptions to end their lives, as permitted by Oregon's Death with Dignity Act.

"Patient rights were never something that should have been on the table," said Pauline Black, 55, of Ashland, who opposed the merger with Dignity Health.

"I hope that the council and the hospital board are going to bring us all together and talk about it," she said.

Gentry did not mention Capella Health Care, a for-profit system based in Tennessee that was among four hospital systems ACH invited to give presentations to its board.

"Financially, we still need to make things work," Gentry said. "We need to move quickly but thoughtfully."

Early this month, Mark Marchetti, ACH chief executive officer, said the hospital could be closed in a year if it remains independent.

Former ACH board Chairman Dr. Doug Diehl told the Ashland City Council on Oct. 16 that ACH has four to six month's worth of operating cash left.

A six-month exclusive negotiation period between ACH and the San Francisco-based health care network began in April, but ACH started seeking a merger more than a year ago.

ACH officials had said such a partnership would guarantee a stable financial future for the hospital, which has reported losses in recent years. Unreimbursed costs associated with treating Medicare and Medicaid patients, other unpaid medical bills and charity care contributed to a $3.3 million loss last fiscal year and a $1.5 million loss in 2008-09.

"Asante empathizes with the hospital and city leaders involved in this key community decision," said Roy Vinyard, Asante Health System president and chief executive officer, in a written statement. "As a local, not-for-profit health system, we would welcome any partnership discussions that might develop in the future.

On Oct. 15, Vineyard sent a 10-point letter to the Ashland City Council, highlighting Asante's attributes. The letter was not distributed, said city recorder Barbara Christiansen, because of then on-going exclusive negotiations involving Dignity Health.

Asante is a not-for-profit, secular system, and owns RRMC and Three Rivers Medical Center in Grants Pass. In 2011, it produced revenues of $480 million.

Also in a written statement, Tom Hanenburg, chief executive officer of Providence Medford Medical Center, said: "Providence looks forward to assisting ACH in crafting a solution that will work best for them and the local community.

"We are delighted that the Ashland board is reconsidering Providence, which offered a solution that we felt would work well for the community."

Providence Health & Services is a nonprofit Catholic health care ministry in which all of its 27 hospitals adhere to the church's religious directives. It posted revenues of about $7 billion in 2011.

Hospital officials and employees have expressed concern that a connection with a nearby Medford hospital eventually would lead to a reduction in services provided in Ashland.

In an interview earlier this month, Diehl also said Providence's restrictions on abortion-related services or physician-assisted suicide would be stricter than rules imposed by Dignity Health. He also said Asante may not be large enough to avoid a future takeover by a major hospital chain.

Valerie Muroki, 71, of Ashland, co-authored a resolution to the City Council asking it to maintain authority to approve the sale or closure of ACH if a deal was formed with Dignity Health. On Monday, she said she was glad Dignity Health is no longer an option.

"I want to see negotiations with Asante and whoever else the hospital wants to include, to see what they can do to provide us with what we've been asking for from the beginning: patients rights, local control and job guarantees."